It’s officially June and that means only a few weeks remain before the end of the financial year (EOFY) which means tax time. It’s been a whirlwind 12 months for small businesses, so we’re here to give you guidance on how to reduce business tax and provide you with some valuable tax-saving tips.
We may sound like a broken record, but we say it time and time again for a reason; tax preparation is a tax-saver. When we are able to forecast your income and tax, we can calculate what tax you are required to pay, while determining how best to manage it and minimise it before you lodge it. Once we do these we can look into the most effective options for tax reduction.
A big part of tax preparation is getting the right strategies in place, one of which is trustee resolutions. If you have a Discretionary Trust with income and own a small business, this is a great way to minimise the tax you pay.
If you haven’t yet completed your trustee resolutions, now is the time. Completing this before the June 30 will prevent income from being trapped in your Trust and being taxed at the highest marginal tax rate.
So who can you distribute to with a Discretionary Trust?
Generally, you can distribute only $416 to children who are minors. That might not seem like a lot, but if you have 3 children and you are in the 47% tax rate, that works out to $586.56 in tax savings.
If you have children who are over 18 and are studying at university or are not really earning an income, you can distribute up to $21,600, and they will not pay any tax. At the 47% tax rate, that is $10,152 in tax savings. If we increase that to $37,000, they will have to pay $3,667 in tax and your net tax savings will be $13,723.
Siblings who are studying at university, or are not really earning an income, may also be eligible to receive distributions in a similar fashion as demonstrated above, but it’s important to make sure no one else is doing the same thing.
And finally, you can also distribute to parents, parents-in-law and/or grandparents who are self-funded. A key thing to note is that if the people you are looking to distribute receive Centrelink, then this strategy is unlikely to work for you.
To claim a tax deduction for superannuation for your business, the Super needs to be officially paid and processed before June 30. So aim to complete this a week before the EOFY.
By paying your June quarter, or month’s Super before the end of the financial year on the 30th of June, you will get a tax deduction for the year and can create a significant one-off tax benefit. If you have $20,000 to pay in Super for your employees prior to the 30th of June, this can result in a tax saving of up to $9,400!
Want to transfer your Intellectual Property and other key assets into a protected vehicle? An asset entity may be the solution.
There are three things that must be done to achieve this. The first and most important is protecting your assets effectively by having the assets in a separate entity to the trading business. The second is being able to take security over the trading business. The third is prepaying a license and lease fee to this new entity for the assets that it now holds.
Imagine moving $200,000 and prepaying a $30,000 in a lease/license fee. Even at the company tax rate, you can defer paying tax on this of $7,800 and, with company taxes reducing next year, there is also a permanent tax saving.
One great tax-reducing strategy is to purchase your business premises in your SMSF or purchase an existing commercial property, that will be owned by your SMSF. Either strategy means that you can get your Super money working for you now and save significant dollars.
If you already own a commercial property outside of Super, it may be worthwhile looking at transferring the property to your Superannuation Fund. It may help to free up cash and possibly even reduce your personal non-tax-deductible debt on your mortgage.
For example, one of our clients owned a commercial property outside of their Superannuation Fund. The property was worth $275,000, with a small loan of approximately $50,000 left on the premise. They netted $205,000 (after Capital Gains Tax); that left them with only $50,000 on their personal mortgage. A great outcome for the client.
Furthermore, they now have net tax savings of $2,175 every year, because the income from the property is taxed at 15%, not 34.5% and 39%.
Remember to review any Stamp Duty implications with the transfer of property, and seek advice as to whether you will have to pay Stamp Duty on the transaction.
It may seem a bit cheating the system, but we promise it just pays to be prepared. You can prepay your expenses and fees for up to 12 months and claim them as a deduction and that does include us. Furthermore, we provide a discount for prepaying for 12 months and you will find a lot of other providers (especially software) might provide decent discounts for this strategy. So not only will you save tax, but you can also potentially reduce your costs.
If you need help reducing business tax, contact our expert tax accountants at PCR Accounting & Advisory on 03 9847 7516.
Owner of PCR Accounting & Advisory, Peter Marmara-Stewart is a top-tier accountant and financial advisor dedicated to helping clients reach their business goals and achieve financial freedom. Peter is highly regarded for his client-focused approach and entrepreneurial spirit, catering to a diverse range of professionals across a wide scope of industries all across the country. Peter’s expertise can help you plan effectively, set goals, maximise profits and protect your assets. Get in touch today on (03) 9847 7516.